So there we were: We owned the company. We had the confidence of myopic exuberance pushing us. We had made the business successful enough to afford us this opportunity, and we were cocky enough to think we could continue to do it on our own. With our talented, tenured work force, superior IT, reputation in the market as a reliable dispenser of information and top branded products, we seemed unstoppable.
Balance sheet leverage is like an escalator going up when your business is growing and like a sledgehammer coming down when it isn’t. If there was one critical contributor to the demise of our business, and there were many now recognized in hindsight, it would be our inability to pay off our debt before the recession hit.
It was early in 2008 that I received the call from our banker. Our lines of credit were due and he called to ask me in to discuss it. At that meeting, I was told that our loans were to be renewed but the advance rates (amounts of money we could borrow against our assets) were being diminished.
I, along with many other building material distributor clients of the bank were summoned to a conference room for an analyst’s explanation of that important change. Remember, this was the beginning of the collapse of the U.S. economy in early 2008. We were all told at that meeting that the bank felt that, particularly in the construction materials segment, we all had a 20 percent “air ball” in the value of our assets.
It was explained that this was the amount of decline in the value of our inventory and accounts receivable, 20 percent for most of us.
I raced back to the office and brought in our executive team to give them the news. We did a “Days to Live” analysis and shuddered at the math. The negative cash flow as a result of this change was catastrophic. Within months we would run out of cash.
We cut back as quickly as we could: releasing employees, many of whom we’d had for decades, slashing service processes and reducing our overhead. Two “Black Friday” meetings where we had to terminate large numbers of our staff were among the bleakest days of my life, the only exception being the simultaneous diagnosis of my youngest daughter with Hodgkin’s Lymphoma.
When that didn’t work, Chapter 11 became the only viable option. With the cooperation of our suppliers, banker and remaining employees, we felt we could recover. But Chapter 11 is the ultimate test of the loyalty and will of your partners. Ours couldn’t abandon ship fast enough. And those of us left behind to sort through it all got an intimate lesson in merciless, unyielding, unforgiving, bottom-line capitalism unmasked. All pretenses of fraternity and camaraderie disappeared once the annuity stream unwound.
Key employees left at our most vulnerable time only to take jobs with competitors while stating they’ll continue to do everything in their power to protect the ESOP. Then came the spouses of former owners, once colleagues and partners, grabbing you by your shirt at an industry dinner, assaulting you and yelling at you in front of your peers that they hoped your daughter died of the cancer she had just been stricken with.
Still others chose to leave us at our most critical junctures to join a predator business, a butcher came along to carve up the carcass of our damaged enterprise by actively recruiting our remaining key employees, the ones we needed the most.
It only got worse when some of our manufacturers turned on us too, handed their brand to the same usurper that plundered our staff and all the while continued to espouse their loyalty to us.
All of these experiences were real. These are circumstances unimagined or denied at the beginning of our dream. The direct part you take in the demise of a once thriving business is something you will always live with and should take great lessons from. There is no poultice to salve the shame of collapse. The responsibility you take as the chief officer of a company and trustee of a plan for being unable to overcome the forces of change and utilize emotionally based decision making rather than empirical data, harshly redefines your perspective of success. It diminishes and enlightens at the same time. You exit that period of your life transformed and yet these economic lessons are illuminations of the highest wattage and cost.
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Peter Rincione was the president of Professional Trade Supply (PTS) Flooring Distributors at a time when the company entered into an Employee Stock Ownership Program (ESOP) that eventually failed. Today, he is the marketing and sales director at Western Trade Supply in Denver. He can be reached at psrincione@gmail.com. Twitter: @princione